I was just thumbing through the AST contract and noticed the following entry.

<Agents name> retain the right to reserve a fee of 1% plus VAT should the Tenant, past or present, purchase the before mentioned property.

Is this common to most AST agreements? or is this opportunism on the part of the Estate Agent?

Also, It doesn't make clear what the 1% is of .... I would guess the agreed selling price but shouldn't an entry in a legal document be more explicit?

I know estate agents are always looking for a slice of the action but I'm paying them to find me a tenant and manage my property.

davidjohnbutton

23-03-2006, 23:37 PM

I seem to remember having read somewhere that this was considered to be an unfair contract term (not in the relationship between landlord and tenant, but that of landlord and agent).

It effectively means that the agent gets 1% for absolutely zero work!!!!!!

Steve C

23-03-2006, 23:46 PM

I have used agents in the past as a tenant find service and then done the management myself. In the agreement that I had with the letting agent IE their terms and conditions, there was a similar clause. I can't comment on DJB's comment as I have no idea whether that is right or wrong. I would say though, if the clause is in the AST, the agents would not be able to claim this fee as they are not a party to the agreement, this is a contract between landlord and tenant.

Energise

24-03-2006, 00:15 AM

<Agents name> retain the right to reserve a fee of 1% plus VAT should the Tenant, past or present, purchase the before mentioned property..

1% of what? :confused:

Ericthelobster

24-03-2006, 07:57 AM

I was just thumbing through the AST contract and noticed the following entry.

<Agents name> retain the right to reserve a fee of 1% plus VAT should the Tenant, past or present, purchase the before mentioned property.Love 'em. I particularly like the idea that if a tenant who left 5 years ago comes back and buys your property, that you are supposed to give them a fee!

It effectively means that the agent gets 1% for absolutely zero work!!!!!!So - no change there then! ;)

davidjohnbutton

24-03-2006, 10:28 AM

Here you go!

"OFT squashes agents unfair contract term

For those who are interested in such things, the OFT (Office of Fair Trading, but OFT is easier to type) has published is quarterly report on cases on unfair terms (as per the Unfair Terms in Consumer Contracts Regulations 1999) for October to December 2005. One featured contract term, rightly squashed by the OFT, caught my eye, I quote:

“This term provided that, in the event of a sale of the property arising directly or indirectly out of the letting to the tenant, the landlord was liable to pay a commission to the agent. This was unfair for the following reasons. The future sale of the property was unlikely to be in the contemplation of the landlord at the time he entered into the agreement. If the landlord subsequently decided to sell the property to the tenant, he would have already paid for the services with which he had been provided. It was unfair to seek a bonus for a possible future event in circumstances where the agent had provided no correlative service.”

The creative use of contract terms to swell the coffers is a well known ploy, but landlords will be pleased to know that the OFT have put the kibosh on this one at least.

The ‘how changed’ section of the report goes on to say

“Now the agent merely offers an obligation free valuation of the property. The new term also states that sale of the property would be subject to terms and conditions of a new agreement.”

So now you can sell your property to your tenants, and not pay a penny to your agents. Well, probably."

I come across this clause frequently within agents tems of business and occasionally in AST's. David's post is entirely correct in that not only is it unfair, but it actually comes under different legislation which is the main reason.

If you sell a property it's the Estate Agents Act 1979 that prevails, where the agent is required to furnish the owner with written terms of business prior to his agreeing to sell through that agent. As the "landlord" would not be party to those terms when instructing the agent to let the property, as the EA Act is nothing to do with lettings then the cluase is void and can safely be ignored. Even if the agent tried to contain it within a TOB then it would be a restraint of trade.

This is why many letting agents are so far behind in their knowledge of current legislation and the reason is they are not undertaking enough, or usually, any, training.

ziggy

24-03-2006, 11:04 AM

When I started as an agent I did not include this clause in my terms of business, as I thought it unfair, we're a letting agent, not an estate agent. But over the years there have been several cases where the landlord has subsequenty sold the property to a tenant, and we have lost the business (the properties in question were under management), and felt a bit miffed.
We have recently introduced a clause that states if the tenant buys the property whilst we are the managing agents then a fee of 1 months rental is paid. All the landlords that have signed up since have been happy with this, although if one did particulary object we would probably remove this, I wouldn't lose the business because of it.
At the end of the day the owner is saving several thousand pounds in estate agency fees, and having rent paid right up to the exchange date.

CoffeeCup

24-03-2006, 13:32 PM

Cheers guys for digging out the legal stuff:)

I suspected this contract term was unfair. They have a suitable tenant, who I have accepted and need me to sign the AST asap.

Should I:-

A. Ask them to remove the term from their contract.
B. Leave it in knowing it would *not* be enforceable.

Option (B) would keep them 100% on-side. I'm sure my agent in their deluded world would look at this as an appropriate bonus payment.

Tweedle Dum

24-03-2006, 13:47 PM

The last 3 agents that I considered using all had this in their terms and conditions. One actually stated that commission would be payable on the sale proceeds up to 2 years after the tenant had vacated if I were to sell to the tenant.

Ericthelobster

24-03-2006, 20:42 PM

Should I:-

A. Ask them to remove the term from their contract.
B. Leave it in knowing it would *not* be enforceable.

Option (B) would keep them 100% on-side.I suggest the answer depends on several factors:

1. If the scenario ever happened, would the "1%" be deducted from money held be the agent and passed on to you, or would they need to invoice you for it? Because if it's the latter, you could tell them to whistle for it, whereas if it's the former, you would have to actively do something to get the money back, up to and including the hassle of instigating court proceedings.

2. How likely do you consider it is that you may wish to sell your property to a tenant (and/or that they may wish to buy it?). If "highly unlikely", then there's not a lot of point in making waves!

PaulF

25-03-2006, 19:21 PM

Eric - there is one main difference!
I suggest the answer depends on several factors:

1. If the scenario ever happened, would the "1%" be deducted from money held be the agent and passed on to you, or would they need to invoice you for it? Because if it's the latter, you could tell them to whistle for it, whereas if it's the former, you would have to actively do something to get the money back, up to and including the hassle of instigating court proceedings. This is theft therefore a criminal act, and not necessarily a civil matter.

2. How likely do you consider it is that you may wish to sell your property to a tenant (and/or that they may wish to buy it?). If "highly unlikely", then there's not a lot of point in making waves!It does happen in about 5% of cases when the property is sold on, so is not as unusual as you think.